MEMPHIS, Tenn. — FedEx Corp. cut its fourth-quarter earnings expectations Friday, blaming continuing increases in fuel costs.
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Oil Hits $126.25 |
The Memphis-based shipping company said it expects profits of $1.45 to $1.50 per share for the three months ended May 31, down from its previous prediction of $1.60 to $1.80 per share.
Analysts surveyed by Thomson Financial predicted quarterly earnings of $1.69, down from earlier expectations of $1.95.
"Since we provided earnings guidance for the fourth quarter in March when the crude oil price was slightly above $100 per barrel, our estimated fuel costs for the quarter have increased more than 7 percent, or $100 million from our previous estimate," said FedEx Chief Financial Officer Alan B. Graf Jr.
FedEx customers pay surcharges to help offset fuel costs, but "they cannot keep pace in the short-term with rapidly rising fuel prices," Graf said.
Graf also said that the new earnings forecast "assumes no additional increases to the current fuel price environment and no further weakening of the economy."
Oil rose above $126 a barrel for the first time Friday, bringing its advance for the week to nearly $10.
FedEx also said the weak U.S. economy is holding down demand for domestic express shipments and less-then-truckload freight services. The company is often seen as a bellwether for the U.S. economy.
But the company's difficulties in financial predictions are due to fluctuating fuel costs, said analyst Dan Ortwerth of Edward Jones.
"We had already expected a weak domestic economy, but fuel costs these days defy predictions," Ortwerth said. "At this point, the predictions for the price of fuel are all over the map."
In March, FedEx reported a 6-percent drop in third-quarter earnings, also citing high fuel costs and the sluggish economy.
The company at that time said it expected lower earnings for the fourth quarter compared with the same period a year earlier, and predicted limited growth for the fiscal year.
FedEx declined further comment on fourth-quarter expectations, noting that the company's earnings report is due on June 18.
"We're in a quiet period," said spokesman Jess Bunn.
FedEx shares fell $2.84, or more than 3 percent, to $90.37 on Friday. In after-hours trade, they declined about $2.96, or 3.3 percent, to $87.41.
source: 9may2008
Unrelenting fuel-price increases and soft demand forced FedEx Corp. to lower its quarterly profit forecast for a second time this fiscal year, in the latest sign of continued weakness in the U.S. economy.
Like other major transportation companies dependent on the housing market and consumer spending to drive the shipment of goods to store shelves, FedEx is feeling the pain of a slowdown in both sectors.
The Memphis, Tenn., company said late Friday that its fuel costs have increased by $100 million, or 7%, since the company in March issued its previous outlook for its current fiscal quarter ending May 31.
In a prepared statement, FedEx chief financial officer Alan B. Graf Jr. said fuel surcharges designed to pass along the expense to customers "cannot keep pace in the short-term with rapidly rising fuel prices."
Mr. Graf also said the revised outlook for the quarter "assumes no additional increases to the current fuel price environment and no further weakening of the economy."
In March, FedEx posted its third consecutive decline in quarterly profit and, reversing its outlook, said it saw no improvement in the U.S. economy for the rest of 2008. Rival United Parcel Service Inc. offered the same dismal forecast in its most-recent quarterly report in late March, lowering its own profit target for the current quarter and the full year.
For its current fourth quarter ending May 31, FedEx expects earnings of $1.45 to $1.50 a share, compared with its original target of $1.60 to $1.80 a share. Analysts surveyed by Thomson Reuters had an average estimate for earnings of $1.69 a share.
FedEx didn't change its full-year guidance of $6.40 to $6.70 a share.
The succession of disappointing quarters raises the question of whether the company can still hit that target, which itself has been lowered twice in the past fiscal year, in September and November. FedEx also lowered its second-quarter forecast in November.
FedEx has pulled a number of operating levers to reduce costs and squeeze more revenue from customers.
It has cut $500 million in budgeted capital spending, to $3 billion for the year, and put off most major projects, except for an expansion in China. In January, rates on air shipments jumped by the largest percentage in more than a decade. Air deliveries contributed 65% of FedEx's overall revenue in its most-recent quarter.
FedEx is the leader in the air-cargo industry, flying an average of more than 3.6 million packages a day around the world.
While international volumes have grown steadily, the U.S. market has remained flat and forced FedEx to shed unprofitable air shipments.
At the same time, the company's construction of its Asia hub in China and launch of intra-China service is pushing costs higher.
Fedex shares fell 3%, or $2.84, to $90.37 in New York on Friday, before the profit warning was released.
source: 9may2008
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